IMF team to probe Australian housing bubble risk

September 26, 2013 Leave a comment

IMF team to probe Australian housing bubble risk

Published 24 September 2013 11:25, Updated 25 September 2013 06:38

John Kehoe

The International Monetary Fund will investigate any risks posed by surging housing prices when it sends a team of economists to Australia later this year. The IMF is scheduled to conduct its annual Article IV consultation on the Australian economy in November, with financial stability and the hot housing market expected to be key issues analysed. The timing of the visit will coincide with an ongoing debate among investors, banks and regulators about whether low interest rates are inflating a dangerous house price bubble. The Reserve Bank’s quarterly financial stability review, to be released on Wednesday, will provide more guidance about the bank’s views on the market.News of the visit comes after the IMF this month urged regulators around the world to consider using so-called macroprudential tools, such as limits on loan-to-valuation ratios or increased bank capital requirements, to prevent banks fuelling house price bubbles.

Former Reserve Bank of Australia board member Bob Gregory said this month that a property bubble seemed “inevitable” and Melbourne University professor Ross Garnaut said making banks set aside extra capital would be “simple and logical”.

Some offshore hedge funds are betting that Australian bank share prices will fall, amid concerns over exposure to a potentially over-heating housing market.

Sydney’s clearance rate hit a record 88.4 per cent in the fourth week of spring, with 426 homes selling out of the 482 that were put to market during the last week, according to property monitoring firm RP Data.

Nationwide house prices are up 5.8 per cent over the year to mid-September, with Sydney prices up 8.2 per cent.

After the IMF’s visit to Australia in October last year, the Washington based fund concluded that house prices were a point of vulnerability for Australia.

The IMF observed that the prospect of a sharp fall in the prices of homes or commercial real estate was low, but there would be a medium impact on the Australian economy if it eventuated.

Filed under Macro Trends

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